Private Credit Crisis Just Hit JP Morgan!! (Systemic Risks Skyrocket)
Summary
Private Credit Stress: Extensive discussion on mounting redemptions, loan markdowns, and forced asset sales across private credit funds, creating a potential doom loop.
Banks’ Exposure: JP Morgan (JPM) reportedly marked down software loan collateral and curtailed back-leverage to private credit managers, signaling tighter lending and reduced liquidity.
Asset Managers in Focus: Blue Owl (OWL) is cited repeatedly alongside other private lenders seeing rising redemption pressures and valuation scrutiny.
Collateral Dynamics: The underlying private loans serving as collateral are being marked down, pressuring both private credit managers and bank balance sheets, amplifying systemic risk.
Software Valuation Risk: The guest argues that many software companies face deteriorating economics as AI tools rapidly commoditize app development and erode traditional software moats.
AI Disruption: Advancements in AI agents could quickly replace legacy software solutions, with Intuit (INTU) highlighted via QuickBooks as a vulnerable example.
Liquidity Tightening: Limiting back-leverage and stricter lending standards reduce system liquidity, which can accelerate failures among weaker borrowers and funds.
Systemic Outlook: The commentary frames the situation as mid-cycle in a worsening credit downturn, with risks reminiscent of pre-GFC patterns if redemption and markdown trends persist.
Transcript
Hello, fellow Rebel Capitals. Hope you're well. So, most of you know I've been having some serious internet issues, but hopefully hopefully hopefully this stream will work because we've got some big big news. We all know about Blue Owl. We all know about Blackstone. We all know that Black Rock is now kind of a victim of this private credit crisis. But now, go ahead and include JP Morgan. And this is where it could get systemic. It's one of the main reasons I wanted to make sure if it's a lowgrade video because the internet I got the news out to you guys today. So if it's pixelated or whatever, just bear with me here. But what we want to do first is go over what's happening in CNBC and then dive into the details and then think through how this private credit business model if you will actually works to try to determine what the systemic risks actually are. So first and foremost let me do the screen share. I'm going to be very delicate here hopefully. Please internet please work. We're going to go over to CNBC and they got a quick video on it. So, let's do this summary. I'll give you my response to this and uh then we'll go into a Bloomberg article that dives into some greater detail here. Because, by the way, it's not just JP Morgan. We had another cockroach, another private credit cockroach come out today and announce that they're having all of these redemptions. They're having to fire sell assets. And now it's not just impacting the assets on the cockroach's balance sheets. It's impacting the banks JP Morgan and even more importantly, it's impacting the collateral. And you guys know how important that is to the global monetary system. That's where it really gets systemic. But let's start by going over this uh quick summary here. report said JP Morgan was marking down software portfolios and limiting lending. Leslie Picker is here with more on that story, Leslie, and how much we should read into it. >> Hey Sarah. Yeah, we've confirmed those reports and this really involves leverage that JP Morgan is providing to private credit funds that the asset managers essentially use to juice their own returns known as back leverage. The collateral for this type of financing is the underlying loans for those private credit funds and that is what is being slightly marked down according to two sources close to the situation. Now, >> okay, let me give my comments here just to make sure that we're following this and you guys know from watching my videos. I've been talking about this model for a long time. You've got a garbage borrower. Let's just use a an actual person because we can all we can all relate to that and we'll use a mortgage. So, you got a 500 credit score guy. Well, the bank won't lend to him directly. There's no way. So, what happens is the Blue Owl or private credit comes in, they borrow because they got the 750 credit score. Then they go ahead and lend to the guy with the 500 credit score and then they charge them a higher interest rate than they're getting from the bank. They pocket the spread. Now, there's also an equity component to it as well. I'm the debt side of it just to keep things super super simple, right? But that loan that the private credit guy makes to the guy with the 500 credit score, that's the collateral, believe it or not, for the loan that they got from the big bank, Wells Fargo, JP Morgan. So, what you have is the private credit guys having to say, "Oh, yeah, it's not 100 cents on the dollar. It's 50 cents on the dollar." And therefore, they're getting all these mass redemptions that are making the problem even worse. But then that potentially blows a hole in the balance sheet of JP Morgan, right? Because they're using that as collateral. They also have to write that down which does what to lending standards or what does what to money. It tightens it, right? It reduces the amount of liquidity because now and what JP Morgan is saying is okay, no more. We're done. We're out. They're saying we are not going to lend to these private credit guys anymore. So, by definition, what is that doing? That's reducing liquidity in the system at a time when these private credit guys and the guys with the 500 credit score, by the way, really need that liquidity. It dries up and it all happens at once. It's like going bankrupt. It happens very, very slowly and then boom, all at once. Now, I'm told that JP Morgan essentially took this moment, did some additional due diligence across the financing portfolio, went name by name, and then had an overlay of the macro outlook. And from there, they determined that the loans were too highly valued. In this environment, a lot of this has to do with the revaluation of software. Now, what does this all mean? First, let's be super clear that this is not JP Morgan clocking a bunch of losses, but rather what they see as a preemptive move. But it never starts that way, does it? I mean, think back to, and I'm not saying this is going to be a GFC 2.0, but go back for those of you who were adults and remember 2007 and 2008 really well. Did it start with just Lehman Brothers blowing up? No. It starts where there's just a little crack in the dam and they always say, "Oh, this is just nothing big. This is minor." They just sweep it under the rug and they're like, "Oh, this is this is fake news here. you guys are just uh overexaggerating the risks. You're just fear-mongering it. They always say that and like, "Oh, the rest of the balance sheet is bulletproof. The rest of our loans are rock solid. This is the ruse. This is the script that these guys use every single time. They never ever ever come out and say, "Holy cow, pants on fire. You guys better take all your money right now because we're insolvent." It it never and I'm not saying that JP Morgan is gonna go bust, but these cycles always work this way. Now, is JP Morgan going to have more problems? In my view, my base case would be absolutely they are. This is just the smoke. And where there's smoke, we are definitely going to see fire. I don't think this is inning nine. I don't think this is like Silicon Valley Bank, which just oh goes away. And by the way, Silicon Valley Bank didn't go away because the problem that created Silicon Valley Bank to begin with is essentially the problem that we're seeing right now, but just further down the road, further down the cycle. So bottom line here is this is not, in my view, the last problem that you're going to hear in terms of private credit and the cockroaches impacting Jaime Diamond's balance sheet. and it'll probably throw in there Wells Fargo, Bank of America. I mean, the tide's going out, guys. >> One source described it to me as a pumping of the brakes versus hitting a wall. There are not an onslaught of margin calls. It also does not >> there never is. There never is. You never just hit the wall. That doesn't happen. Even in the GFC, you always pump the brakes before you hit the wall. mean that private credit clients necessarily need to immediately post more collateral only if they want more leverage. Now what this does is limit the borrowing capacity for some private credit managers from >> in other words it tightens money >> JP Morgan. It also adds another data point to the debate over whether the current valuations being disclosed across private credit are too lofty given the feature of private markets is that the markings happen less frequently. Of course, they're too high. But what happens also with JP Morgan coming out and saying, "Oh, well, we're not demanding that they put up more margin." Because they know if they did that, then it's a self-fulfilling prophecy. I think I just had a light go out. So, I'm sure the quality of this stream absolutely sucks. But as long as the audio is there, guys, that's all you need. That's all you need. So, they're not going to come out and say, "Yeah, we need margin." Because then, or they're going to post more margin because then it's a self-fulfilling prophecy. The market sees that and then they really fireell everything and then they really demand redemptions and then you're basically just putting a gun to these private credit highs guys head and just boom pulling the trigger getting them out of their misery. That that that would be kind of like that would be like the nuclear option, right? So they're not going to do that. So they have to tap dance around that as much as they possibly can. In response to some of that broader criticism, Apollo's co-president, John Zto, saying in a Bloomberg interview that the firm plans to start reporting their net asset values on a monthly basis with the ultimate goal of disclosing on a daily basis plus third party valuations, guys. >> Also, Leslie, meantime, uh there's this piece about PIMCO warning about bad underwriting and then these cliff water 7% plus redemption rates. >> That's what we're going to get into as well. You hear him cliff water. That was the one. I'm not gonna say blew up, but that's the one that is the next blue owl that we just found out about today. >> Concerning? Not. >> So, we'll get the official number hopefully this morning. They were supposed to come out either last night or this morning. When we interviewed Boaz Weinstein, he also pointed Cliff Water as one to watch that they're watching super closely. And he expects those numbers to be somewhere between uh 10 and 20%. So again, that would be higher than seven. We'll see if it goes as high as 20%. We should get those official numbers shortly. But >> so what she's saying there, just so you guys are following, is this cliff water came out today. It might have been late last night and revealed that they have all these redemptions or redemption requests and they're they don't know what to do with it because they're having to write down a lot of their loans or a lot of the assets on their balance sheet. Just the same story as Blue Owl. I mean, it's like it's just like a it's like a broken record here. And right now, they're at 7% redemptions, but what this uh what she is saying is that experts have said they wouldn't be surprised if it went up to 10, 15, 20%. Now, if you have 20% redemption requests and you're trying to fulfill those with highly illquid uh assets, even if those assets are trading at 100 cents on the dollar or even those assets are valued at 100 cents on the dollar if you have a fire cell, you're not going to get 100 cents on the dollar. You might get 70 cents on the dollar if you're lucky. And that's if the values are actually 100 cents, which they most likely aren't. So you get 20% redemptions and you try to fulfill that you're you're pretty much done. And then if you're done, if you blow up, then what does that happen to or what does that do to all the people that you borrowed from like JP Morgan? And what does that do to their view of lending money throughout the rest of 2026? They try to tighten things up as much as they possibly can, which reduces liquidity, which makes money in the financial system even tighter than it otherwise would have been, which exacerbates the problem. >> But I think, you know, in terms of the underwriting standards, that's something that people have been calling out for a very long time because this is an asset class that's grown super quickly. So you have this dynamic of needing to find assets and sometimes that supply demand dynamic can create uh some essentially desperation and >> okay so we get that. Let me go back a make sure that the live stream is working. It looks like it is. We'll keep our fingers crossed here with the internet. Now let me switch up the screen share because I want to go over to this Bloomberg article that gets into more detail. So then we can determine if there are some serious systemic risk, which you guys know my conclusion. The answer is going to be yes. But I never want to come out and say that I think things are deteriorating in the economy without giving you proof. It's not just my opinion. I'm not just pulling this out of the sky. And if I think if it's my base case that we're only in inning say five of this credit cycle, I'm not just going to come out and say that as you guys know. That's why you watch my videos hopefully because I'm going to give you backup as to why I have these beliefs. Okay, so hopefully we've got the screen share working here. Hopefully you guys can hear me. Hopefully you guys can see me. Let's go over to that Bloomberg article that I was referring to. Here we go. JP Morgan restricts private credit lending after loan markdowns. So first thing I highlighted the devalued loans are to software companies. This is where it gets really interesting because software everyone was lending. Everyone was lending. That was one of the major borrowers as well as multif family. I mean they were lending to a lot of different people. There were a lot of 500 credit score guys out there is my point. So the the the middleman there, the Blue Owls, they were lending to a lot of these software companies. Now we're seeing things come out like I'm sure you guys have heard of Open Claw. And if you haven't heard of Open Claw, look it up. It's going totally viral with kind of the tech people on the internet. And this is this AI agent that basically lives on your computer if you want it to and does all these different tasks. And one of the tasks that it can do is code apps and get them like 90% of the way very very quickly. And you have to understand that it's only going to get better from here. So people are looking around at all these software companies and be like, well wait a let me give you an example. Let's say QuickBooks. Let's say you use QuickBooks. I use QuickBooks. I've used QuickBooks for literally decades. So, in the very near future, what's likely going to happen is you can just tell your Open Claw or whatever it is AI agent to make you a customized accounting software app and within 10 minutes you've got it. And why are you going to use QuickBooks? Like, the answer is you wouldn't. And so this is probably going to be a reality very very soon. So what's happening is we're getting all of these advancements in AI and people are looking at these software companies like Quick uh was it uh into it is the group that owns QuickBooks I believe and I'm just using them as an example and they're saying well these guys what's their model like how how are you going to make money? like you're done. Like you're basically a a a VHS S tape if you guys remember. You're basically a CD and we're moving on to MP3s. That's what's happening. And so then they're looking at and by the way, just so you guys understand the analogy, the software company is the 500 credit score guy, right? So they're looking at that and this guy's done. He's toast. And so then they're like, "Okay, well there's private credit. They're marking that at 100 cents. No way. That's probably 10 cents at the most. And so then JP Morgan sees that as their collateral. They say, "Oh crap. We're going to have to go ahead and mark that down to 10 cents as well." And then all of a sudden that blows a hole. Not a big hole, but a blows a hole in their balance sheet, which could get a lot bigger, right? And then they're saying, "Okay, no moss. We're cutting you guys off here." Wall Street lenders like JP Morgan act as banks to private credit funds. I've been saying for the last few months pri providing them with cash using their loans as collateral. A reduction in the value of those assets will curtail the amount of the bank is able to lend to these funds. In other words, liquidity dries up. Money gets tight, which again exacerbates the problem, takes you into that doom loop, heaping further pressure on an industry already grappling with a succession of hefty withdrawals, retail investors. It's not just retail, it's pretty much all investors now spooked by renewal scrutiny of underwriting standards or let's say lack thereof and developments in AI. Cliff Water. Now, this is the new guy on the block. This is the new Blue Owl that just revealed and it's like a 33 billion dollar fund. By the way, that the article here says they're the last private or the latest private credit firm to face redemption requests of excess of 7% from its flagship fund. This is according to Bloomberg today. So, put them right in line with Black Rockck, with Black Stone, with Blue Owl. And oh, by the way, if you guys haven't been paying attention, there was a big private lender in the UK that blew up. I think we're going to get into that in this article. So, a person familiar, let's keep going here. Diamond warned in October that more cockroaches. Yeah, but he didn't say that he was one of the cockroaches. That's probably why Jaime Diamond is so is he's like a soothsayer, right? That's why when whenever he says something, it comes true within like two or three weeks. That's why he's so prophetic because he's one of them. There's Yeah, there's been a lot of dumb underwriting. That's because he's one of the guys that's doing the dumb underwriting. Oh yeah, once you see one cockroach, you see a lot more. Yeah, because he's one of the cockroaches. Okay, so he's saying that more cockroaches would surface in the once booming but opaque world of private lending where prices aren't typically disclosed. Since then, some investors in the sector have brushed off the jitters. Yeah, good call, guys. Good call brushing off those jitters. Just whistling straight by the graveyard. Those are the guys say, "Oh, you're just fear-mongering. Oh, George, I watch your videos and you're talking about private credit and the issues in private credit. I don't see any collapse yet. Uh yeah, I'm out there buying the S&P. Buy the dip. Okay. Yeah, keep keep doing that and keep just burying your head in the sand like an ostrich and just hoping all this blows over. That that's usually not a good investment strategy. Getting back to the article here, Wall Street banks have been the staunchest financial supporters of the private credit industry, lending about 300 billion to the credit funds in June. So it's not just the 300 billion, right? It's it's what the write down of the 300 billion does to liquidity in the financial plumbing. That's really what we got to focus on. But let's move on here. So JP Morgan had about 22 billion in exposure, right? But so that's direct exposure. How about all the other loans that JP Morgan made not to private credit but to other entities that lent to private credit? You see the 22 billion that's only the direct exposure. We need to think about the indirect exposure as well and that's where it goes into a financial crisis just like we saw during the GFC. So facing increased regulation in the wake of the financial crisis, banks offloaded much of their risky lending to these blue owl guys. So good job. Way to go government. Woohoo. Good job regulators. This is why I when people bring up things like a 10% reserve requirement, I always just laugh. I'm like, look, you think a 10% reserve requirement is going to get in the way of a bank making a loan, whether it's through an offshore entity or maybe it's through a wink wink deal with a private credit. Of course, they're look, if they can make money, they're going to do the deal. I don't care what type of regulation you put in their way, they're just going to get around it. And usually getting around it is worse than them doing the deal directly, as we're seeing right now. So here's where we get into this being a global issue. And again, just looking at the systemic risks here, but the strategy is wobbling with a the recent collapse. They're talking about I don't know how you could call this a strategy, but that's what they're referring uh that's what they're uh that's the terminology that they're using to describe this business model. So, the strategy is wobbling with the recent collapse of UK mortgage lender Market Financial Solutions. That's hitting real close to home. Mortgage lender history doesn't repeat, but it rhymes. MFS, which borrowed more than 2 billion from backers, including Barlay's, Apollo, Atlas, claimed to be operating one of the UK's biggest providers of short-term brid bridge loans until its February 25 collapse. So, the main takeaway, if you guys can still hear me, is you've got the 500 credit score, guys. You've got the private credit in the middle and you've got the banks. And the systemic risk is that these guys blow up. Blows a hole in their balance sheet. Blows a hole in their balance sheet. It doesn't take them out, but increases lending standards, reduces liquidity, and makes money extremely tight, which makes more of these guys blow up, which makes more of these guys blow up, which creates a bigger hole in the balance sheet of these guys. That's the doom loop. And that's that's how these cycles usually play out. We've seen the boom. We've lived through it and everyone was just, you know, dancing while the music's still playing. But what we're seeing right now is the music is stopping and the tide is going out. And these cycles, these credit cycles are going to cycle whether we like it or not. So the question is, what do you do about it? And you guys mostly know what I'm doing. If you want to check out more of what I'm doing, my own personal investment portfolio or what we're talking about, Rebel Capitalist Pro, which is the investment service that I have with my good friends Chris Macintosh, Brent Johnson, Patrick Stresna, just to name a few. We'll put a link in the description below. But the bottom line is this is something guys, you have to pay attention to. You have to, even if you're one of these retirees with a 401k and you got plenty of equity in your home and you just want to go play golf or you want to hang out with your grandkids, you want to just pretend that none of this is going to impact you. Look, this is this could be very similar to the GFC. It might not play out the exact same way, but it could be very similar in the sense that it impacts almost everybody. It impacts almost everybody in one way, shape, or form. And you can either prepare or you can be a victim. The choice is yours. The choice is yours because right now we very well could be at the latter stages of 2007 or the beginning stages of 2008. And if you prepare for fine, fine. what you haven't lost anything. What's your downside to being prepared? What's your downside to thinking this through? What's your downside to considering the probabilities that we're only in inning five of this credit cycle and this could and likely will have a lot of systemic risks. I think that's the point. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market capitalism. We'll see you in the next video.
Private Credit Crisis Just Hit JP Morgan!! (Systemic Risks Skyrocket)
Summary
Transcript
Hello, fellow Rebel Capitals. Hope you're well. So, most of you know I've been having some serious internet issues, but hopefully hopefully hopefully this stream will work because we've got some big big news. We all know about Blue Owl. We all know about Blackstone. We all know that Black Rock is now kind of a victim of this private credit crisis. But now, go ahead and include JP Morgan. And this is where it could get systemic. It's one of the main reasons I wanted to make sure if it's a lowgrade video because the internet I got the news out to you guys today. So if it's pixelated or whatever, just bear with me here. But what we want to do first is go over what's happening in CNBC and then dive into the details and then think through how this private credit business model if you will actually works to try to determine what the systemic risks actually are. So first and foremost let me do the screen share. I'm going to be very delicate here hopefully. Please internet please work. We're going to go over to CNBC and they got a quick video on it. So, let's do this summary. I'll give you my response to this and uh then we'll go into a Bloomberg article that dives into some greater detail here. Because, by the way, it's not just JP Morgan. We had another cockroach, another private credit cockroach come out today and announce that they're having all of these redemptions. They're having to fire sell assets. And now it's not just impacting the assets on the cockroach's balance sheets. It's impacting the banks JP Morgan and even more importantly, it's impacting the collateral. And you guys know how important that is to the global monetary system. That's where it really gets systemic. But let's start by going over this uh quick summary here. report said JP Morgan was marking down software portfolios and limiting lending. Leslie Picker is here with more on that story, Leslie, and how much we should read into it. >> Hey Sarah. Yeah, we've confirmed those reports and this really involves leverage that JP Morgan is providing to private credit funds that the asset managers essentially use to juice their own returns known as back leverage. The collateral for this type of financing is the underlying loans for those private credit funds and that is what is being slightly marked down according to two sources close to the situation. Now, >> okay, let me give my comments here just to make sure that we're following this and you guys know from watching my videos. I've been talking about this model for a long time. You've got a garbage borrower. Let's just use a an actual person because we can all we can all relate to that and we'll use a mortgage. So, you got a 500 credit score guy. Well, the bank won't lend to him directly. There's no way. So, what happens is the Blue Owl or private credit comes in, they borrow because they got the 750 credit score. Then they go ahead and lend to the guy with the 500 credit score and then they charge them a higher interest rate than they're getting from the bank. They pocket the spread. Now, there's also an equity component to it as well. I'm the debt side of it just to keep things super super simple, right? But that loan that the private credit guy makes to the guy with the 500 credit score, that's the collateral, believe it or not, for the loan that they got from the big bank, Wells Fargo, JP Morgan. So, what you have is the private credit guys having to say, "Oh, yeah, it's not 100 cents on the dollar. It's 50 cents on the dollar." And therefore, they're getting all these mass redemptions that are making the problem even worse. But then that potentially blows a hole in the balance sheet of JP Morgan, right? Because they're using that as collateral. They also have to write that down which does what to lending standards or what does what to money. It tightens it, right? It reduces the amount of liquidity because now and what JP Morgan is saying is okay, no more. We're done. We're out. They're saying we are not going to lend to these private credit guys anymore. So, by definition, what is that doing? That's reducing liquidity in the system at a time when these private credit guys and the guys with the 500 credit score, by the way, really need that liquidity. It dries up and it all happens at once. It's like going bankrupt. It happens very, very slowly and then boom, all at once. Now, I'm told that JP Morgan essentially took this moment, did some additional due diligence across the financing portfolio, went name by name, and then had an overlay of the macro outlook. And from there, they determined that the loans were too highly valued. In this environment, a lot of this has to do with the revaluation of software. Now, what does this all mean? First, let's be super clear that this is not JP Morgan clocking a bunch of losses, but rather what they see as a preemptive move. But it never starts that way, does it? I mean, think back to, and I'm not saying this is going to be a GFC 2.0, but go back for those of you who were adults and remember 2007 and 2008 really well. Did it start with just Lehman Brothers blowing up? No. It starts where there's just a little crack in the dam and they always say, "Oh, this is just nothing big. This is minor." They just sweep it under the rug and they're like, "Oh, this is this is fake news here. you guys are just uh overexaggerating the risks. You're just fear-mongering it. They always say that and like, "Oh, the rest of the balance sheet is bulletproof. The rest of our loans are rock solid. This is the ruse. This is the script that these guys use every single time. They never ever ever come out and say, "Holy cow, pants on fire. You guys better take all your money right now because we're insolvent." It it never and I'm not saying that JP Morgan is gonna go bust, but these cycles always work this way. Now, is JP Morgan going to have more problems? In my view, my base case would be absolutely they are. This is just the smoke. And where there's smoke, we are definitely going to see fire. I don't think this is inning nine. I don't think this is like Silicon Valley Bank, which just oh goes away. And by the way, Silicon Valley Bank didn't go away because the problem that created Silicon Valley Bank to begin with is essentially the problem that we're seeing right now, but just further down the road, further down the cycle. So bottom line here is this is not, in my view, the last problem that you're going to hear in terms of private credit and the cockroaches impacting Jaime Diamond's balance sheet. and it'll probably throw in there Wells Fargo, Bank of America. I mean, the tide's going out, guys. >> One source described it to me as a pumping of the brakes versus hitting a wall. There are not an onslaught of margin calls. It also does not >> there never is. There never is. You never just hit the wall. That doesn't happen. Even in the GFC, you always pump the brakes before you hit the wall. mean that private credit clients necessarily need to immediately post more collateral only if they want more leverage. Now what this does is limit the borrowing capacity for some private credit managers from >> in other words it tightens money >> JP Morgan. It also adds another data point to the debate over whether the current valuations being disclosed across private credit are too lofty given the feature of private markets is that the markings happen less frequently. Of course, they're too high. But what happens also with JP Morgan coming out and saying, "Oh, well, we're not demanding that they put up more margin." Because they know if they did that, then it's a self-fulfilling prophecy. I think I just had a light go out. So, I'm sure the quality of this stream absolutely sucks. But as long as the audio is there, guys, that's all you need. That's all you need. So, they're not going to come out and say, "Yeah, we need margin." Because then, or they're going to post more margin because then it's a self-fulfilling prophecy. The market sees that and then they really fireell everything and then they really demand redemptions and then you're basically just putting a gun to these private credit highs guys head and just boom pulling the trigger getting them out of their misery. That that that would be kind of like that would be like the nuclear option, right? So they're not going to do that. So they have to tap dance around that as much as they possibly can. In response to some of that broader criticism, Apollo's co-president, John Zto, saying in a Bloomberg interview that the firm plans to start reporting their net asset values on a monthly basis with the ultimate goal of disclosing on a daily basis plus third party valuations, guys. >> Also, Leslie, meantime, uh there's this piece about PIMCO warning about bad underwriting and then these cliff water 7% plus redemption rates. >> That's what we're going to get into as well. You hear him cliff water. That was the one. I'm not gonna say blew up, but that's the one that is the next blue owl that we just found out about today. >> Concerning? Not. >> So, we'll get the official number hopefully this morning. They were supposed to come out either last night or this morning. When we interviewed Boaz Weinstein, he also pointed Cliff Water as one to watch that they're watching super closely. And he expects those numbers to be somewhere between uh 10 and 20%. So again, that would be higher than seven. We'll see if it goes as high as 20%. We should get those official numbers shortly. But >> so what she's saying there, just so you guys are following, is this cliff water came out today. It might have been late last night and revealed that they have all these redemptions or redemption requests and they're they don't know what to do with it because they're having to write down a lot of their loans or a lot of the assets on their balance sheet. Just the same story as Blue Owl. I mean, it's like it's just like a it's like a broken record here. And right now, they're at 7% redemptions, but what this uh what she is saying is that experts have said they wouldn't be surprised if it went up to 10, 15, 20%. Now, if you have 20% redemption requests and you're trying to fulfill those with highly illquid uh assets, even if those assets are trading at 100 cents on the dollar or even those assets are valued at 100 cents on the dollar if you have a fire cell, you're not going to get 100 cents on the dollar. You might get 70 cents on the dollar if you're lucky. And that's if the values are actually 100 cents, which they most likely aren't. So you get 20% redemptions and you try to fulfill that you're you're pretty much done. And then if you're done, if you blow up, then what does that happen to or what does that do to all the people that you borrowed from like JP Morgan? And what does that do to their view of lending money throughout the rest of 2026? They try to tighten things up as much as they possibly can, which reduces liquidity, which makes money in the financial system even tighter than it otherwise would have been, which exacerbates the problem. >> But I think, you know, in terms of the underwriting standards, that's something that people have been calling out for a very long time because this is an asset class that's grown super quickly. So you have this dynamic of needing to find assets and sometimes that supply demand dynamic can create uh some essentially desperation and >> okay so we get that. Let me go back a make sure that the live stream is working. It looks like it is. We'll keep our fingers crossed here with the internet. Now let me switch up the screen share because I want to go over to this Bloomberg article that gets into more detail. So then we can determine if there are some serious systemic risk, which you guys know my conclusion. The answer is going to be yes. But I never want to come out and say that I think things are deteriorating in the economy without giving you proof. It's not just my opinion. I'm not just pulling this out of the sky. And if I think if it's my base case that we're only in inning say five of this credit cycle, I'm not just going to come out and say that as you guys know. That's why you watch my videos hopefully because I'm going to give you backup as to why I have these beliefs. Okay, so hopefully we've got the screen share working here. Hopefully you guys can hear me. Hopefully you guys can see me. Let's go over to that Bloomberg article that I was referring to. Here we go. JP Morgan restricts private credit lending after loan markdowns. So first thing I highlighted the devalued loans are to software companies. This is where it gets really interesting because software everyone was lending. Everyone was lending. That was one of the major borrowers as well as multif family. I mean they were lending to a lot of different people. There were a lot of 500 credit score guys out there is my point. So the the the middleman there, the Blue Owls, they were lending to a lot of these software companies. Now we're seeing things come out like I'm sure you guys have heard of Open Claw. And if you haven't heard of Open Claw, look it up. It's going totally viral with kind of the tech people on the internet. And this is this AI agent that basically lives on your computer if you want it to and does all these different tasks. And one of the tasks that it can do is code apps and get them like 90% of the way very very quickly. And you have to understand that it's only going to get better from here. So people are looking around at all these software companies and be like, well wait a let me give you an example. Let's say QuickBooks. Let's say you use QuickBooks. I use QuickBooks. I've used QuickBooks for literally decades. So, in the very near future, what's likely going to happen is you can just tell your Open Claw or whatever it is AI agent to make you a customized accounting software app and within 10 minutes you've got it. And why are you going to use QuickBooks? Like, the answer is you wouldn't. And so this is probably going to be a reality very very soon. So what's happening is we're getting all of these advancements in AI and people are looking at these software companies like Quick uh was it uh into it is the group that owns QuickBooks I believe and I'm just using them as an example and they're saying well these guys what's their model like how how are you going to make money? like you're done. Like you're basically a a a VHS S tape if you guys remember. You're basically a CD and we're moving on to MP3s. That's what's happening. And so then they're looking at and by the way, just so you guys understand the analogy, the software company is the 500 credit score guy, right? So they're looking at that and this guy's done. He's toast. And so then they're like, "Okay, well there's private credit. They're marking that at 100 cents. No way. That's probably 10 cents at the most. And so then JP Morgan sees that as their collateral. They say, "Oh crap. We're going to have to go ahead and mark that down to 10 cents as well." And then all of a sudden that blows a hole. Not a big hole, but a blows a hole in their balance sheet, which could get a lot bigger, right? And then they're saying, "Okay, no moss. We're cutting you guys off here." Wall Street lenders like JP Morgan act as banks to private credit funds. I've been saying for the last few months pri providing them with cash using their loans as collateral. A reduction in the value of those assets will curtail the amount of the bank is able to lend to these funds. In other words, liquidity dries up. Money gets tight, which again exacerbates the problem, takes you into that doom loop, heaping further pressure on an industry already grappling with a succession of hefty withdrawals, retail investors. It's not just retail, it's pretty much all investors now spooked by renewal scrutiny of underwriting standards or let's say lack thereof and developments in AI. Cliff Water. Now, this is the new guy on the block. This is the new Blue Owl that just revealed and it's like a 33 billion dollar fund. By the way, that the article here says they're the last private or the latest private credit firm to face redemption requests of excess of 7% from its flagship fund. This is according to Bloomberg today. So, put them right in line with Black Rockck, with Black Stone, with Blue Owl. And oh, by the way, if you guys haven't been paying attention, there was a big private lender in the UK that blew up. I think we're going to get into that in this article. So, a person familiar, let's keep going here. Diamond warned in October that more cockroaches. Yeah, but he didn't say that he was one of the cockroaches. That's probably why Jaime Diamond is so is he's like a soothsayer, right? That's why when whenever he says something, it comes true within like two or three weeks. That's why he's so prophetic because he's one of them. There's Yeah, there's been a lot of dumb underwriting. That's because he's one of the guys that's doing the dumb underwriting. Oh yeah, once you see one cockroach, you see a lot more. Yeah, because he's one of the cockroaches. Okay, so he's saying that more cockroaches would surface in the once booming but opaque world of private lending where prices aren't typically disclosed. Since then, some investors in the sector have brushed off the jitters. Yeah, good call, guys. Good call brushing off those jitters. Just whistling straight by the graveyard. Those are the guys say, "Oh, you're just fear-mongering. Oh, George, I watch your videos and you're talking about private credit and the issues in private credit. I don't see any collapse yet. Uh yeah, I'm out there buying the S&P. Buy the dip. Okay. Yeah, keep keep doing that and keep just burying your head in the sand like an ostrich and just hoping all this blows over. That that's usually not a good investment strategy. Getting back to the article here, Wall Street banks have been the staunchest financial supporters of the private credit industry, lending about 300 billion to the credit funds in June. So it's not just the 300 billion, right? It's it's what the write down of the 300 billion does to liquidity in the financial plumbing. That's really what we got to focus on. But let's move on here. So JP Morgan had about 22 billion in exposure, right? But so that's direct exposure. How about all the other loans that JP Morgan made not to private credit but to other entities that lent to private credit? You see the 22 billion that's only the direct exposure. We need to think about the indirect exposure as well and that's where it goes into a financial crisis just like we saw during the GFC. So facing increased regulation in the wake of the financial crisis, banks offloaded much of their risky lending to these blue owl guys. So good job. Way to go government. Woohoo. Good job regulators. This is why I when people bring up things like a 10% reserve requirement, I always just laugh. I'm like, look, you think a 10% reserve requirement is going to get in the way of a bank making a loan, whether it's through an offshore entity or maybe it's through a wink wink deal with a private credit. Of course, they're look, if they can make money, they're going to do the deal. I don't care what type of regulation you put in their way, they're just going to get around it. And usually getting around it is worse than them doing the deal directly, as we're seeing right now. So here's where we get into this being a global issue. And again, just looking at the systemic risks here, but the strategy is wobbling with a the recent collapse. They're talking about I don't know how you could call this a strategy, but that's what they're referring uh that's what they're uh that's the terminology that they're using to describe this business model. So, the strategy is wobbling with the recent collapse of UK mortgage lender Market Financial Solutions. That's hitting real close to home. Mortgage lender history doesn't repeat, but it rhymes. MFS, which borrowed more than 2 billion from backers, including Barlay's, Apollo, Atlas, claimed to be operating one of the UK's biggest providers of short-term brid bridge loans until its February 25 collapse. So, the main takeaway, if you guys can still hear me, is you've got the 500 credit score, guys. You've got the private credit in the middle and you've got the banks. And the systemic risk is that these guys blow up. Blows a hole in their balance sheet. Blows a hole in their balance sheet. It doesn't take them out, but increases lending standards, reduces liquidity, and makes money extremely tight, which makes more of these guys blow up, which makes more of these guys blow up, which creates a bigger hole in the balance sheet of these guys. That's the doom loop. And that's that's how these cycles usually play out. We've seen the boom. We've lived through it and everyone was just, you know, dancing while the music's still playing. But what we're seeing right now is the music is stopping and the tide is going out. And these cycles, these credit cycles are going to cycle whether we like it or not. So the question is, what do you do about it? And you guys mostly know what I'm doing. If you want to check out more of what I'm doing, my own personal investment portfolio or what we're talking about, Rebel Capitalist Pro, which is the investment service that I have with my good friends Chris Macintosh, Brent Johnson, Patrick Stresna, just to name a few. We'll put a link in the description below. But the bottom line is this is something guys, you have to pay attention to. You have to, even if you're one of these retirees with a 401k and you got plenty of equity in your home and you just want to go play golf or you want to hang out with your grandkids, you want to just pretend that none of this is going to impact you. Look, this is this could be very similar to the GFC. It might not play out the exact same way, but it could be very similar in the sense that it impacts almost everybody. It impacts almost everybody in one way, shape, or form. And you can either prepare or you can be a victim. The choice is yours. The choice is yours because right now we very well could be at the latter stages of 2007 or the beginning stages of 2008. And if you prepare for fine, fine. what you haven't lost anything. What's your downside to being prepared? What's your downside to thinking this through? What's your downside to considering the probabilities that we're only in inning five of this credit cycle and this could and likely will have a lot of systemic risks. I think that's the point. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market capitalism. We'll see you in the next video.